3 October 2009

Nigeria: Reserves -FG Moves to Set Up Sovereign Wealth Funds

Istanbul — As part of efforts to boost its foreign reserves, Nigeria will soon join other countries of the world to set up a sovereign wealth funds (SWF), to create more assets for the country with foreign reserves.

The Minister of Finance Dr. Mansur Murhtar, made the disclosure during the ongoing annual meetings of the World Bank/IMF in Istanbul, Turkey, where he also told newsmen the results of the Nigerian delegation's meetings with the IMF/World Bank officials and the Africa caucus.

According to him, Nigeria is considering setting up the fund with its reserve as a way of adding value and making the reserves earn more for the nation.

According to the minister, the Ministry of Finance, the Central Bank of Nigeria and members of the National Assembly are already discussing the idea as there is need to have a legal instrument to back up the creation of a Nigeria sovereign wealth fund.

The fund, when created, will help the country to diversify its revenue base and increase income flow into the federation account.

Sovereign wealth funds are pools of money derived from a country's reserves, which are set aside for investment purposes that will benefit the country's economy and citizens.

The funding for a sovereign wealth fund comes from Central Bank reserves that accumulate as a result of budget and trade surpluses as well as from revenue generated from the exports of natural resources, especially crude oil as it relates to Nigeria.

The types of acceptable investments included in each sovereign wealth fund vary from country to country; countries with liquidity concerns limit investments to only very liquid public debt instruments.

Some countries have created SWFs to diversify their revenue streams.

For example, the United Arab Emirates (UAE) relies on oil exports for its wealth; therefore, it devotes a portion of its reserves to an sovereign wealth that invests in other types of assets that can act as a shield against oil-related risk.

The amount of money in these SWF is substantial. As of May 2007, the UAE's fund was worth more than $875 billion. The estimated value of all SWFs is pegged at $2.5 trillion.

Sovereign funds have existed at least since the 1950s, but their total size worldwide has increased dramatically over the past 10-15 years. In 1990, sovereign funds probably held, at most, $500 billion; the current total is an estimated $2-3 trillion and, based on the likely trajectory of current accounts, could reach $10 trillion by 2012.

The minister said the Nigerian delegation's mission in Istanbul was to look at opportunities that will enable the country achieve macroeconomic stability and ensure that the country derived the maximum benefit of its membership of the Bretton Woods multilateral Institution.

He said that both the management of the IMF and the World Bank have acknowledged the progress so far made in by Nigeria in its economic recovery efforts though the future is still being viewed with cautious optimism.

He also said that Nigeria and other African countries were pushing for an increased Africa voice at both the World Bank and IMF, stating that an extra executive seat was being asked for at both institutions for Africa.

According to him, it the World Bank level Africa caucus is pushing for an executive board member which the Bank's board has conceded while at the IMF, the Africa group is calling for an alternate board member.

Murhtar said that the Africa caucus is equally urging the Bretton Woods Institutions to liberalise their employment policies in order to accommodate more Africa personnel in these institutions.

He said this has become imperative as it is Africans who actually know the real problems of the continent and be favourably disposed to committing resources to them.

He further disclosed that it was the view of the Africa group that the headship of the Bretton Woods Institutions should not be limited to certain region of the world but should be open to all qualified members of the institutions.

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